Financial Services Report (3/4)

On Friday, the Treasury announced that it was, once again, forced to initiate "extraordinary measures" to ensure that the full faith and credit of the United States Government will not be breached. As has been the case in the past, these actions are expected to push back the "drop dead" date for a breach of the debt limit into the summer, and perhaps even later. With Congress also needing to re-set funding levels for the FY20 budget in order to bypass mandatory budget cuts, there are some who view the marrying of the issues as the best path forward. Setting up those negotiations, to be even closer to the 2020 election year, especially with a President who enjoys wrapping himself in the success of the stock market, could be setting us up for another bumpy ride.

Looking Ahead

The House is scheduled to take up H.R.1, legislation to improve the election process – both in terms of access as well as the process, since the Bill would make many changes to the campaign finance system. While not expected to be taken up by the Republican Senate, the measure have the effect of giving some House Democrats who vote for it the opportunity to revisit their decision to take so-called "Corporate PAC" money (which is a total misnomer as the funds come from employees and not the corporate coffers).

In the Financial Services Committee there is no let down in activity as it works through another full week with a mark-up on Tuesday, along with the first CFPB Oversight Committee with the Democrats in charge.

Last Week in the House

On the Floor

The House began the week by passing a resolution of disapproval for he President's emergency declaration, and then passed two bills aimed at improving the background checks required before purchasing a handgun. For those who follow the inside baseball, during debate on one of those measures, the Democratic majority lost a procedural vote known as a "motion to recommit" which was the second procedural vote lost this Congress.

Hearings & Markups

Financial Services Committee Hearing on Credit Bureaus (2/26): Committee Democrats harshly criticized the CEOs of the nation's three major credit reporting agencies over data breaches, errors, and alleged failure to serve consumers. Additionally, Chairwoman Maxine Waters promoted her Comprehensive Consumer Credit Reporting Reform Act, which would reform the credit report dispute process, shorten the time that adverse information stays on credit reports. For their part, the Republican minority largely focused on improving dispute resolution and increasing competition in the three-firm dominated industry as a way of improving credit reporting. Following the CEO panel, a second panel of stakeholders discussed challenges facing the credit reporting industry relating to diversity, access to credit, and the Fair Credit Reporting Act.

Energy and Commerce Consumer Protection Subcommittee Hearing on Data Privacy (2/26): Several Democrats—including Chairs Frank Pallone and Jan Schakowsky—questioned the effectiveness of notice and consent privacy disclosures and voiced support for additional limitations on the collection and sharing of data. For their part, Committee Republicans consistently made two points: (1) supporting a federal preemption of state privacy legislation and (2) criticizing the regulatory burden of the European General Data Privacy Regulation (GDPR).

Fed Chair Semiannual Testimony (2/27): Echoing his Senate testimony from the previous day, Fed Chair Jerome Powell told the Financial Services Committee that the Fed is "in no rush to make a judgement" on raising interest rates and is close to announce plans for ending the runoff of its $4 trillion crisis-era securities portfolio. In her opening statement, Chairwoman Waters expressed concern that the Fed is "following the Trump Treasury Department’s deregulatory roadmap to weaken the capital and liquidity buffers on some of the largest banks." In contrast, Ranking Member McHenry thanked Chairman Powell for his engagement with Congress and efforts to tailor financial regulations. Additionally, several members on both sides of the aisle expressed concern at the impact of the Current Expected Credit Loss (CECL) standard, though Chair Powell demurred on multiple efforts to commit the Fed to engaging further on the issue.

Diversity and Inclusion Subcommittee Hearing on Diversity Trends (2/27): During the first hearing of the Financial Services Committee's newest subcommittee, GAO Director for Financial Markets and Community Investment Daniel Garcia Diaz noted that minority group representation among executives and senior management positions still lag far behind representation in mid- and lower-management. In her opening statement, Subcommittee Chairwoman Joyce Beatty emphasized the productivity benefits of companies having diverse leadership, while Subcommittee Ranking Member Ann Wagner called for more data to support diversity initiatives in the financial sector.

Ways and Means Hearing on US-China Trade (2/27): Appearing before the Ways and Means Committee, US Trade Representative Emphasized Lighthizer emphasized three key priorities for US negotiators attempting to resolve the country's ongoing trade dispute with China: (1) “significant structural changes” on intellectual property and tech transfers; (2) more purchases of U.S. goods; and (3) a strong enforcement policy. Additionally, Ambassador Lighthizer confirmed that USTR would cancel plans to raise tariffs on $200 billion of Chinese goods. Lawmakers on both sides of the aisle continued to call for better exclusion processes for various Trump tariffs, while Democrats continued to demonstrate unease towards the US-Mexico-Canada Agreement NAFTA replacement deal.

Bills Introduced

HR 1387 (Kustoff and Foster): Requires the President to create national strategy to combat organized crime financial networks.

HR 1414 (Wexton and Riggleman): Amends the duties of the Financial Crimes Enforcement Network (FinCEN) to ensure FinCEN works with tribal law enforcement agencies.

HR 1432 (Jerry McNerney and four cosponsors): Establishes a Minority Business Development Administration within the Department of Commerce.

HR 1439 (Tim Walberg and Lisa Blunt Rochester): establishes a fiduciary safe harbor to lifetime income products and offers guidelines for employers to offer annuities among their retirement plans.

Other Activity

HFSC March Hearing Schedule: On Monday, Financial Services Committee Chairwoman Maxine Waters announced the Committee's March hearing schedule. Highlights among the nine hearings scheduled for March include: (1) a March 7 oversight hearing of the Consumer Financial Protection Bureau; (2) a March 12 hearing on the Wells Fargo scandals, which will likely feature CEO Tim Sloan; and (3) a March 14 hearing on the Securities and Exchange Commissions best interest rule.

Trump Foundation Scrutiny: On Thursday, HFSC Chairwoman Waters indicated interest in investigating the Trump Foundation over allegations of fraud and tax evasion. In her comments, the Chairwoman hinted at receiving a tip from "from somebody who told me about a situation" and also noted former Trump Attorney Michael Cohen's allegations made during his appearance before the Oversight Committee that President Trump used the foundation to conceal personal artwork purchases.

FinTech Task Force: On Friday, Stephen Lynch (D-MA) told reporters that Chairwoman Waters selected him as chair of the newly created HFSC Fintech Task Force "weeks ago"—despite widespread speculation that Rep. Bill Foster (D-IL) had received the Chairwoman's blessing to lead the panel. Regardless of which Democratic member is in the Chair, Rep. French Hill (R-AR) is expected to be the Ranking Member of the yet-to-be established task force.

Last Week in the Senate

The Floor

On Wednesday, the Senate voted 83-15 to confirm Michael Desmond to be General Counsel of the Internal Revenue Service. The fifteen Democrats voting against the California tax attorney included the six Senators running for President, as well as Sen. Bob Menendez (D-NJ), who had held up Mr. Desmond's nomination over the Tax Cuts and Jobs Act's cap on the state and local tax (SALT) deduction.

Hearings & Markups

Fed Chair Semiannual Testimony (2/26): In his semiannual monetary policy report to the Banking Committee, Fed Chair Jerome Powell said that the Fed is "in no rush to make a judgement" on raising interest rates and is close to announce plans for ending the runoff of its $4 trillion crisis-era securities portfolio. For their part, Republicans dedicated significant questioning to the Fed's progress in tailoring Financial regulations, particularly the Volcker Rule. While Committee Democrats varied in their commentary on financial regulation, Ranking Member Sherrod Brown continued to criticize ongoing efforts to tailor financial regulations following last year's banking regulatory relief bill.

Banking Committee Open Executive Session (2/26): The Banking Committee voted to advance 10 nominees, including: (1) Mark Calabria to be Director of the Federal Housing Finance Agency; (2) Bimal Patel to be an Assistant Secretary of the Treasury; (3) Todd Harper and Rodney Hood to be Membres of the National Credit Union Administration Board; (4) Kimberly Reed to be President of the Export-Import Bank; (5) and Spencer Bachus and Judy Pryor to be Members of the Ex-Im Bank Board of Directors. Passing in a 12-13 party line vote, Dr. Calabria's nomination to lead FHFA was the most contentious, with Democrats questioning his history on the 30-year fixed rate mortgage and GSE affordable housing goals.

Banking Committee Hearing on Capital Formation (2/28): Members discussed more than a dozen bills aimed at angel investment, proxy advisory firms, and corporate transparency–many of which were included in last year's JOBS 3.0 capital formation package that overwhelmingly passed the House but failed to gain traction in the Senate. Although Committee Republicans and several Committee Democrats spoke favorably of various pieces of bipartisan legislation, Ranking Member Sherrod Brown questioned the need for legislation targeting capital formation and characterized the bills under consideration as “a lot of rollbacks [of regulations] and very little protection for ordinary investors."

Schatz Proposes Transaction Tax: On Thursday, Sen. Brian Schatz (D-HI) told Vox that he would introduce a a bill imposing a transaction tax of 0.1 percent on trades of stocks, bonds and derivatives. In the interview, Sen. Schatz said that the legislation—the latest ambitious tax proposal to come out of the Senate Democratic Caucus—would raise $800 billion over the course of a decade and clamp down on speculation and high-frequency trades.

Republicans Set Table for CRA on Fed Rule: On Monday, five Banking Committee Republicans led by Sen. Thom Tillis (R-NC) sent a letter to Comptroller General Gene Dodaro requesting that GAO examine if the Federal Reserve Guidance Letters establishing a framework for the supervision of large financial institutions—particularly those in the Large Institution Supervision Coordinating Committee (LISCC)—is a rule under the Congressional Review Act. If GAO deems the framework to be the rule, it would open the door for Congress to overturn the framework under the Congressional Review Act.

Last Week in the Administration

China Tariffs Formally Delayed as Talks Inch On

On Friday, the Office of the United States Trade Representative formally announced its intention to delay a scheduled hike in tariffs on $200 billion in Chinese imports, saying that it is "no longer appropriate" to raise tariffs given progress in the ongoing talks between the two countries. Reports from last week indicate that the two countries are nearing a final trade deal, with US officials reportedly eyeing a summit between President Trump and Chinese President Xi Jinping as soon as mid-March. Despite these reports and optimistic statements from the President and White House officials, however, Treasury Secretary Steven Mnuchin and USTR Robert Lighthizer both cautioned that significant work still remains.

These mixed messages come amid another busy week in US-China relations, with Canada approving the extradition of Meng Wanzhoi—CFO of Chinese telecommunications giant Huawei—on charges of violating sanctions and a World Trade Organization dispute settlement panel finding that Chinese agricultural subsidies were in violation of trade obligations.

Better Than Expected GDP Numbers Inch Towards Three Percent Growth

On Thursday, the Commerce Department reported that real GDP rose by 2.6 percent in the fourth quarter and 2.9 percent overall in 2018. Notably, the 2.6 percent quarterly growth significantly surpassed economic estimates of 2.2 percent, while the 2.9 percent annual growth matched the economy's best year of growth since the end of the great recession—and just barely falling shy of the President's promise of three percent annual growth.

CFPB Launches Savings Initiative

On Monday, the Consumer Financial Protection Bureau announce a new "Start Small, Save Up" Initiative offering tools, tips and information—for instance a savings plan worksheet—to help consumers build savings cushions and positive savings habits. Announcing the initiative, CFPB Director Kathleen Kraninger noted that 40 percent of Americans could not cover a $400 dollar expense out of their own savings.

SEC Names First Chief Risk Officer

On Thursday, the Securities and Exchange Commission announced that Gabriel Benincasa would serve as the Commission's first chief risk officer. Per a press release announcing the appointment, Mr. Benincasa will lead efforts to identify, monitor, and mitigate risks facing the Commission. SEC Chair Jay Clayton first announced his intention to hire a chief risk officer follow revelations that hackers infiltrated an SEC online filing database in 2016.

On Monday, the Commodity Futures Trading Commission issued a joint statement with the Bank of England assuring market participants of "continuity" of derivatives tradings and clearing activities following the scheduled March 29 departure of the United Kingdom from the European Union. Per the statement, by the end of March, the two regulators will have in place: (1) information sharing and cooperation arrangements to support cross-border oversight of derivatives markets; (2) extension of existing CFTC relief and comparability UK firms currently offered to EU firms; and (3) UK equivalence for US firms.

Center for Capital Markets Competitiveness Event on Insurance – 8:30 AM – The U.S. Chamber of Commerce Center for Capital Markets Competitiveness will host an event entitled "A Consideration for Policymakers: The Role of Insurance Investment in the U.S. Economy." Details here.

Hearing: House Ways and Means Committee on Infrastructure – 10:30 AM – The House Ways and Means Committee will hold a hearing entitled "Our Nation's Crumbling Infrastructure and the Need for Immediate Action." Details here.

Hearing: House Small Business Committee on FY2020 Budget Views and Estimates – 10:45 AM – The House Small Business Committee will hold a hearing on the FY2020 Budget Views and Estimates. Details here.

Hearing: House Small Business Committee on Infrastructure – 11:00 AM – The House Small Business Committee will hold a hearing entitled "Rebuilding America: Small Business Perspective." Details here.

Hearing: House Oversight Committee on the GAO's High Risk Report – 2:00 PM – The House Committee on Oversight and Reform will hold a hearing to examine the Government Accountability Office's 2019 High Risk Report. Details here.

Hearing: House Small Business Sub. on the SBA Microloan Program – 10:00 AM – The House Small Business Subcommittee on Economic Growth, Tax, and Capital Access will hold a hearing entitled "Small but Mighty: A review of the SBA Microloan Program." Details here.

Hearing: House Ways and Means Sub. on the IRS Filing Season – 10:00 AM – The House Ways and Means Subcommittee on Oversight will hold a hearing with the National Taxpayer Advocate Nina Olson on the IRS filing season. Details here.

Hearing: House Financial Services Committee on the NFIP – March 13 – The House Financial Services Committee will hold a hearing entitled, “Preparing for the Storm: Reauthorization of the National Flood Insurance Program.” Details not yet available.

Hearing: House Financial Services Sub. on Corporate Transparency – March 13 – The House Financial Services Subcommittee on National Security, International Development and Monetary Policy will hold a hearing entitled, “Promoting Corporate Transparency: Examining Legislative Proposals to Detect and Deter Financial Crime.” Details not yet available.

Hearing: House Financial Services Sub. on the SEC's Best Interest Rule – March 14 – The House Financial Services Subcommittee on Investor Protection, Entrepreneurship and Capital Markets will hold a hearing entitled, “Putting Investors First? Examining the SEC’s Best Interest Rule.” Details not yet available.

Hearing: House Financial Services Sub. on Disaster Recovery Funds – March 26 – The House Financial Services Subcommittee on Oversight and Investigations will hold a hearing entitled, “The Administration of Disaster Recovery Funds in the Wake of Hurricanes Harvey, Irma, and Maria.” Details not yet available.

Hearing: House Financial Services Sub on Disclosure Reform – March 26 – The House Financial Services Subcommittee on Investor Protection, Entrepreneurship and Capital Markets will hold a hearing entitled, “Building a Sustainable and Competitive Economy: An Examination of Proposals to Improve Environmental, Social and Governance Disclosures.” Details not yet available